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The IMF and Global Coordination

Sep 16, 2010Michael Spence
Having initially been shunned at the outset of the recent financial crisis, the IMF has assumed a key role in financing – and, more importantly, implementing – fiscal-stabilization programs. But the Fund is also at the epicenter of large-scale global coordination challenges, particularly the need to rebalance and restore global demand.

NEW YORK – Before the crisis of 2008, the International Monetary Fund was in decline. Demand for loans was low, leaving it short of revenue. Asia remained leery of the Fund a full ten years after the currency crises of the late 1990’s. Its analytical talents remained high but downsizing placed them at risk.

The crisis changed all that. It became clear that the IMF has a crucial role to play in dealing with crisis-induced instability. Moreover, because of the Fund’s broad and deeply embedded multinational expertise, its activities are central to achieving globally cooperative solutions to economic and financial problems. Without such solutions, the system will tend to become periodically unstable, and to go off on unsustainable paths that end destructively. We have just lived through one of these episodes.

The IMF is needed for several key purposes. One involves crisis response. In a global financial upheaval like our most recent one, capital flows shift abruptly and dramatically, causing credit, financing, and balance-of-payments problems, as well as volatile exchange rates. Left unattended, these problems can cause widespread damage in a wide range of countries, many of which are innocent bystanders.

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Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Advisory Board Co-Chair of the Asia Global Institute in Hong Kong, and Chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World.